The Washington Post: ‘Raiding’ Underlines Russian Legal Dysfunction

August 13, 2009

3 Lawyers Tar­get­ed After Uncov­er­ing Seizure of Firms

Philip P. Pan

When three of Rus­si­a’s finest lawyers agreed to rep­re­sent the invest­ment fund Her­mitage Cap­i­tal, they thought they were tak­ing on a rou­tine tax case.

Then they uncov­ered evi­dence of a breath­tak­ing crime: Top police and tax author­i­ty offi­cials appeared to have qui­et­ly seized own­er­ship of Her­mitage firms and used them to arrange a $230 mil­lion tax refund.

Now, the lawyers them­selves are in legal trou­ble. One has been jailed. The two oth­ers have fled the coun­try. All three face charges that seem intend­ed to dis­cred­it Her­mitage and divert atten­tion from the enor­mous theft.

Their plight high­lights the haz­ards of prac­tic­ing law in Rus­si­a’s cor­rup­tion-rid­den courts despite near­ly two decades of reforms sup­port­ed by hun­dreds of mil­lions in U.S. and Euro­pean aid. Pros­e­cu­tors and police con­tin­ue to dom­i­nate the judi­cia­ry as they did in the Sovi­et era, but unre­strained by the insti­tu­tions of the old Com­mu­nist sys­tem or the checks of a gen­uine democ­ra­cy, the oppor­tu­ni­ties for abuse have grown.

No crime illus­trates the state of the legal sys­tem bet­ter than what is known as “rei­der­st­vo,” or raid­ing — the takeover of busi­ness­es through court rul­ings and oth­er osten­si­bly legal means with the help of crooked judges or police. The prac­tice is so wide­spread that local media have report­ed what raiders charge: $10,000 to alter a cor­po­rate reg­istry, $50,000 to open a crim­i­nal case, $300,000 for a court order.

Her­mitage, once Rus­si­a’s largest for­eign share­hold­er with more than $4 bil­lion in hold­ings, says it encoun­tered a bold vari­a­tion on rei­der­st­vo: When raiders failed to seize its assets, they loot­ed the Russ­ian trea­sury instead, then went after the lawyers who caught them.

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BusinessWeek: Hermitage Claims Russian Bankers May Have Helped With Fraud

July 31, 2009

In a New York court fil­ing, Her­mitage alleges that exec­u­tives of Moscow invest­ment bank Renais­sance Cap­i­tal Hold­ings had pri­or knowl­edge of theft and tax fraud

By Paul Bar­rett and Bri­an Grow
The saga of Her­mitage Cap­i­tal Man­age­ment, once a major force in Moscow finan­cial cir­cles, has tak­en a new twist in the form of a poten­tial­ly explo­sive court fil­ing in New York.

Her­mitage, now locat­ed in Lon­don, has alleged that it was the vic­tim of Russ­ian cor­po­rate raiders and cor­rupt gov­ern­ment offi­cials who coop­er­at­ed to steal its assets, file bogus law suits, and reclaim $230 mil­lion in tax­es pre­vi­ous­ly paid by Her­mitage to the Russ­ian gov­ern­ment. In its fil­ing on July 28 in U.S. Dis­trict Court in Man­hat­tan, Her­mitage alleges pub­licly for the first time that exec­u­tives of anoth­er promi­nent Moscow finan­cial insti­tu­tion, invest­ment bank Renais­sance Cap­i­tal Hold­ings, may have helped defraud Hermitage.

The July 28 fil­ing is an appli­ca­tion for a court order per­mit­ting Her­mitage’s lawyers to seek doc­u­ments from Renais­sance’s New York unit. In par­tic­u­lar, Her­mitage alleges that “cer­tain cur­rent and for­mer exec­u­tives of Renais­sance and its affil­i­ates” had rela­tion­ships with a Russ­ian bank involved in the fraud. Her­mitage also sug­gests in its fil­ing that cer­tain top Renais­sance exec­u­tives had “knowl­edge of the fraud before it became pub­lic knowl­edge.” Renais­sance, the largest Russ­ian invest­ment bank, is one of the most active sell­ers of Russ­ian secu­ri­ties to West­ern investors.

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